It’s Time to Ditch the Niche. If you really want to grow think in terms of revenue streams.

by & filed under All Articles, Growing Segments.

Reprinted with permission from Accounting Today.  

A niche, the dictionary tells us, is an ornamental recess, usually in a wall, that holds a statue or other decorative object.  But in recent years niche has taken on a more generic meaning as a suitable place for someone or something. In accounting, niche has become synonymous with specialty. Accounting firms are routinely advised to build and grow niches in areas such as international business, health care, the nonprofit sector, etc.

I’ve been a strong proponent of specialization, advising firms to move away from a commoditized “something for everyone” model.  The problem is that as they’re currently envisioned and pursued, niches may limit your thinking about growth.

There are three reasons – (1) the term niche is often too narrow and self-limiting, excluding major revenue segments like audit and tax, (2) many times nobody owns the financial success of each (3) firms are mired in tactics rather than strategy.

In their place I propose redefining niches to revenue streams or revenue segmentation.  These are inclusive of all chunks of revenue, enabling specialized growth across all service lines and industries, and giving you the firepower to grow your firm.

Niches are Narrow, Segments are Broad

Case in point.  Firm A leaders tell me that they are eager to establish niches in litigation support and risk management.  Fine, I say.  But growing two niches (any two niches) is not sufficient to grow your entire firm.

“What about audit and tax?” I ask.  They may not be commonly considered niches, but they are key sources of revenue that cannot be ignored.

I introduce the concept of revenue streams by helping Firm A create a simple spreadsheet.  Rows represents service lines (assurance, small business services, tax, consulting, etc.) and columns represent industries or other buyer groups (banking, hospitality, construction, international, etc.).

The resulting totals are revenue streams or segments, showing the amount of revenue currently generated by segments, both in dollars and as a percentage of the firm’s overall revenue.  Also – and importantly – there is a total row and total column to enter the anticipated percentage growth for each segment.  You know where you’ve been and where you’re headed – a strong start.

Assigning Accountability

The spreadsheet also has a column for the name of the firm leader who will champion each revenue stream.  Linking revenue and profitability to individuals addresses another problem with niches, which is that nobody is responsible for their financial success.

Too often niche building is seen as an extracurricular activity – a good thing to do when you have extra time, but no one’s real duty.

Assigning a leader introduces accountability, which is a start.   Otherwise, partners sit around a conference table nodding in agreement that construction or education are niches worth pursuing.  But little gets done.

As intuitive as this sounds, it’s foreign thinking in most firms.  I recently sat with a partner who had been assigned to lead a particular segment.  My task was to help him dig into his segment and identify pathways to growth.

The first question I asked was how much revenue his segment had generated in the previous year.  (You can’t grow unless you know your starting point, right?)  To my surprise I was met with a blank stare.  He hadn’t a clue. Here’s the takeaway – without a solid understanding of past performance and a strong segment leader at the helm, meaningful growth is not likely.

Strategy Trumps Tactics

Finally, growing revenue and profit is all about moving away from tactics and toward larger strategies.

A typical tactical approach is to “do things” like attend contractor association meetings and write articles for construction publications.

But how do you know that you’re speaking to or writing for the buyer groups who want what you’ve got to sell? Or that you’re speaking or writing about what they want to hear?  There’s nothing wrong with these tactics.  But they must be part of a larger strategy whose purpose is to align likely buyers with services and channels of distribution.  The process is rooted in a thorough financial analysis of each revenue stream, and driven by a deep thirst for knowledge and nuance.

This approach is part of a comprehensive growth model.   Rather than pluck a niche or two from the air, I recommend firms take a more holistic approach, growing each service line and industry with its own unique strategy. Sustainable growth will only occur when you study where you’ve been and become an expert in where you want to go.  A niche visibility program won’t get you there, but a strategic revenue segmentation approach can!

Gale Crosley

About Gale Crosley

Gale Crosley, CPA, has been awarded The Advisory Board Hall of Fame. She was selected one of the Most Recommended Consultants in the Inside Public Accounting BEST OF THE BEST Annual Survey of Firms for fifteen years, and one of the Top 100 Most Influential People in Accounting by AccountingToday for fourteen years. She is an honors accounting graduate from the University of Akron, Ohio, winner of the Simonetti Distinguished Business Alumni Award, and an Editorial Advisor for the Journal of Accountancy. Gale is founder and principal of Crosley+Company, providing revenue growth consulting and coaching to CPA firms. She brings more than 30 years of experience, featuring a unique combination as a practicing CPA in two national accounting firms, along with significant experience in business development in the cutting edge technology environment with such firms as IBM and MCI.

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